Awkward story for Barney Frank

by Russ Roberts on July 30, 2009

in Government Intervention

This is an awkward story for Barney Frank. I particularly like how he absolves the bank of blame because they bought Fanny stock and it’s the government’s fault that the stock is worthless, not the buyer’s fault for exercising bad judgment.

UPDATE: And it wasn’t Fannie’s fault either. It was the government takeover that made the stock worthless. Something about this story reminds me of the guy who killed his parents and then asked the court to show him mercy because he was an orphan.

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Anonymous July 30, 2009 at 9:40 pm

They couldn’t have been the only bank with shares in Fannie! Even if that justification was legitimate in theory, they weren’t the only one that got hit by that… and Rep. Waters’s husband? That’s even fishier to me. Ugh.

vidyohs July 30, 2009 at 10:29 pm

Just repeat the quote from Joh Adams.

“one useless person is a shame, two a law firm, and three or more a congress.”

Methinks July 30, 2009 at 10:34 pm

The problems with Fannie and Freddie started with the explicit government take-over. That’s rich. Barney is just shameless and obviously thinks Americans are just morons. Of course, they keep re-electing him, so maybe he’s right.

Anonymous July 31, 2009 at 9:48 am

Well – the problem with Fannie and Freddie stock prices started with the take over… the underlying problems that lead to the take over existed well before that.

Methinks July 31, 2009 at 1:55 pm

No, the problem with the stock prices did not start with the takeover. Stock holders are residual owners of the company and there was no residual left. Fan & Fred were bankrupt. Are bankrupt. Without the the take-over, the stock price would be zero.

Name July 30, 2009 at 11:10 pm

Awkward? It’s not awkward at all.

He’d have to be able to feel shame in order to feel awkward.

Anonymous July 31, 2009 at 6:13 am

Barney Frank is the cynical end-game of an education system that teaches kids that they can save the world while accepting little responsibility for their own lives. These kids become naive voters (and supplicants) who believe that they choose their representatives when, in fact, it’s the other way around. And in order to keep his position, Frank uses his power to take care of his paying constituents; his paying constituents, naturally want a return on their investment.

Unfortunately, that’s not what they teach in civics class. And this system is only occasionally the scandal that the media chooses to focus on. It should be encouraged.

Anonymous July 31, 2009 at 7:07 am

The preferred stock (FNA) was worth something until the government made it worthless.

mesaeconoguy July 31, 2009 at 7:50 am

Rep. Brad Sherman, a California Democrat, says none of the Depression-era lawmakers who gave the Fed its power to lend to nonfinancial institutions “ever thought it would involve trillions of dollars”

Oooh, oohooooh, oohhh, sorry let me retrieve my governmental regulatory umbrella….

mesaeconoguy July 31, 2009 at 8:24 am
BoscoH July 31, 2009 at 1:19 pm

Actually, it wasn’t “the guy”. It was the Menendez brothers, Eric and Lyle.

vidyohs July 31, 2009 at 2:40 pm

For more on government idiocy check out this on Stossel’s Take.

Mark T July 31, 2009 at 9:12 am

Although the pfd was worthless and a bad investment, federal banking regulators encouraged banks to hold it by treating it as Tier 1 Regulatory Capital, thereby enabling banks to lever 30:1 against it. There was $4B of pfd which meant $120B of debt against it in the banking system. Regulators’ decision to wipe it out on Sep 8 when they took over FMN and FRE was what triggered the great credit crisis — $120B of debt had to be paid down, because by the end of the monthbanks had to report compliance with their capital ratios, so they started to hold back making new loans and calling whatever they could for repayment. A week later, Lehman went down and the AIG bailout. Later in the month, Wa Mu and Wachovia. All stemmed from the mishandling of this preferred. The cost of these two mistakes – encouraging banks to set their table of leverage with FNM and FRE pfd and then yanking the tablecloth out from under them — wound up in the many hundreds of billions. This is a great example of a regulatory catastrophe.

vidyohs July 31, 2009 at 9:29 am

BTW there is the link to the entire HR 3200, in searchable links just like the USCODE at the Cornell University site. If you want to look in the proposed healthcare bill for any particular thing, it is easy.

Seth July 31, 2009 at 4:40 pm

Exhibit A: Clever people are capable bad things. What’s scary is he gets by with it.

I like the Menendez brothers reference, but I think it was Russ or Don who said it even better on one of Stossel’s pieces, something like, “It’s like asking the arsonist to help put out the fire.”

In this case, it might be more like asking the arsonist to be fire chief. You never know when he’s going set your house on fire so he can come to the rescue.

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